Analysts see benefits for both firms in an agreement between Berkshire Hathaway Inc. unit MidAmerican Energy Holdings Co., Des Moines, Iowa, and Tulsa-based Williams Cos. Inc. to purchase the latter's Kern River Gas Transmission Co. for $960 million in cash and debt.
The firms announced the definitive agreement Mar. 7. Based on terms of the deal, Williams will receive $450 million in cash, and MidAmerican would assume $510 million in debt for the Kern River system.
In addition, MidAmerican will continue Kern River's scheduled expansions, Williams said. In August 2001, Williams had filed with the Federal Energy Regulatory Commission to more than double the Kern River system's capacity to 1.7 bcfd by May 2003 (OGJ, Feb. 4, 2002, p. 22).
Williams said it is selling the 926 mile pipeline to raise much-needed capital and to reduce its capital expenditure requirements by nearly $1.26 billion over the next 11/2 years. "We are taking this decisive step to strengthen our balance sheet to meet the more conservative requirements of the rating agencies, which now require companies like Williams to reduce debt and increase cash flow to maintain an investment-grade credit rating," said Steve Malcolm, president and CEO of Will- iams.
In addition to the sale of the Kern River unit, Williams also announced the sale of $275 million of 97/8% convertible preferred stock to MidAmerican.
Meanwhile, in a previously announced merger of major oil companies, both sets of company shareholders have approved the merger between Conoco Inc. and Phillips Petroleum Co. The deal was proposed late last year (OGJ, Nov. 26, 2001, p. 26) and is expected to be completed by the second half of this year.
Conoco shareholders voted 96% in favor of the deal, while Phillips shareholders voted 97% in favor. The shareholders for both companies voted on Mar. 12.
The combined firm, which will be called ConocoPhillips, hopes to achieve recurring cost savings of at least $750 million/year within the first full year after completion of the deal, the companies said.
Among other recent transactions between energy companies:
- Mirant Corp., Atlanta, has completed the sale of its 44.8% ownership stake in Bewag, a Berlin-based utility, for more than $1 billion in net proceeds after repayment of $600 million in debt associated with its Bewag investment.
- Plains All American Pipeline LP, Houston, acquired a 22% equity interest in Butte Pipe Line Co. from Murphy Ventures, a subsidiary of Murphy Oil Corp., El Dorado, Ark., for $8 million.
- Xcel Energy Inc. announced an exchange offer to buy back the 26% of independent power producer subsidiary, NRG Energy Inc., that it does not already own. Both companies are based in Minneapolis.
- The bankrupt Enron Corp. agreed to sell the wind turbine manufacturing assets of Enron Wind Corp. to the power systems business of General Electric Co., but the deal's financial terms were not disclosed.
- Imperial Petroleum Inc., Evansville, Ind., has assumed management and board control of Warrior Resources Inc., Dallas, after buying enough shares to bring Imperial's stake in Warrior to 35.6%.
MidAmerican Energy
Shortly following the companies' joint announcement, Moody's Investors Service confirmed Kern River Funding Corp.'s A2 senior unsecured debt rating. Moody's viewed the transaction as a positive for both Williams and the Mid- American unit, saying, "While the pipeline will not represent a significant portion of [MidAmerican's] cash flow, it does reflect a diversification in its source of cash flow from a high-quality, regulated asset going forward."
Moody's added that it sees the Kern River asset as being in a "strong competitive position," given its lower tariff rates compared with alternative gas transmission systems serving to California. The pipeline is relatively new as well, requiring little maintenance, Moody's said.
Fitch Ratings, meanwhile, currently rates Williams's outstanding senior notes and debentures as BBB, and its commercial paper as F2. "Although the sale will remove both a valuable asset and stable cash flow source from [Williams's] credit profile, the expected drop in consolidated [earnings before interest, tax, depreciation, and amortization] contribution from regulated pipelines should be offset by the associated reduction in debt and capital spending requirements," Fitch said.
Regarding Williams's divestment of the Kern River system, UBS Warburg analyst Ronald Barone said, "However, it should be noted that several long-term capacity contracts for Kern River were recently renegotiated, lowering fees and extending the depreciation of the system."
Mirant
Mirant agreed to sell its position in Bewag to the Vattenfall group on Nov. 30, 2001.
"Consistent with our announced business plan, this sale is yet another step in strengthening Mirant's balance sheet and improving its liquidity," said Marce Fuller, Mirant president and CEO. "Other asset sales continue to be pursued by Mirant." In 1997, Mirant purchased a 26% interest in Bewag and increased that stake to 44.8% last year.
Plains All American
Butte Pipe Line owns the 373 mile Butte Pipeline System that runs from Baker, Mont., to Guernsey, Wyo. The system transports 60,000 b/d of crude oil, although portions have "significant incremental capacity" beyond that, Plains All American said. The pipeline is a mainline transmission system with segments of 6-16-in. pipe.
Equilon Pipeline Co. LLC owns 78% interest in Butte Pipe Line Co.
The Butte Pipeline connects with the Poplar Pipeline System, which connects with the Wascana Pipeline System that extends into Canada. Plains All American owns 100% of the Wascana pipe- line system.
Harry Pefanis, Plains All American's president and chief operating officer, said, "We believe these pipeline systems will play an important role in moving increasing volumes of Canadian crude oil into markets in the United States."
Xcel
NRG was spun off from Xcel 2 years ago. Terms of the deal call for a tax-free exchange in which NRG shareholders are to receive 0.4846 shares of Xcel Energy for each outstanding share of NRG common stock.
The deal, expected to close in April, requires approval by shareholders and regulators.
Xcel Energy Pres. and CEO Wayne H. Brunetti said, "numerous factors have recently led to significant erosion in the valuations within the [independent power project] sector and resulted in a fundamental shift in market perception that has increased the cost of capital for these companies."
NRG has retained Credit Suisse First Boston as its financial advisor to assist in evaluating the exchange offer.
Once Xcel launches the offer, NRG's independent directors committee will evaluate the offer and recommend that stockholders accept or reject the offer. The committee also could decide to express no opinion or take a neutral stand.
Xcel Energy plans to provide NRG with $600 million of equity while curtailing NRG's expansion plans by selling $1.9 billion of existing generating assets, canceling planning projects worth $700 million, and deferring other projects worth $900 million.
In addition, Xcel said it would sell NRG's unassigned turbines and reduce business development and general expenses by $45 million.
All these actions are expected to reduce NRG's 2002 cash requirements by $3 billion, Brunetti said.
Completion of the offer will be conditioned upon NRG's public shareholders tendering enough shares so that Xcel Energy would own at least 90% of NRG. Developed in 1989, NRG has 20,000 Mw of power generation.
Enron Wind
The transaction includes Enron Wind's global wind turbine manufacturing and marketing operations. The manufacturing plants are in the US, Germany, Spain, and the Netherlands. Enron Wind also has 11 sales offices worldwide.
Wind farms that are owned or operated by Enron are not part of the deal.
Enron Wind said it will file a voluntary petition for Chapter 11 reorganization in the US Bankruptcy Court for the Southern District of New York. Subject to bankruptcy court and regulatory approvals, the sale is expected to close in the second quarter.
Stanley Horton, chairman and CEO of Enron Global Services, said Enron Wind is a good business, but "its future growth requires more capital than we can justify under current circumstances." Enron Wind is part of Enron Global Services. Proceeds from the sale will help to repay Enron's creditors, Horton said (OGJ, Feb. 18, 2002, p. 22).
Warrior-Imperial deal
Warrior and Imperial also announced a merger agreement providing for Imperial's acquisition of the remaining shares of Warrior through a transaction in which Warrior is to be merged into a subsidiary of Imperial.
Warrior stockholders will receive 1 share of Imperial for each 10 shares of Warrior. Warrior was formerly Comanche Energy Inc.
Imperial Pres. and CEO Jeffrey T. Wilson said, "As a result of our purchase of control of Warrior and the assumption of management control, we expect to eliminate approximately $67,000/ month in overhead expenses presently being incurred by Warrior."
Warrior's oil and gas properties are onshore primarily in Texas, Oklahoma, and Mississippi. Imperial is a diversified oil, natural gas, and mining company. Recently, it announced plans to develop and install electrical power generation units in California. Imperial said the power generation business complements its natural gas business.